In late December, the SEC adopted amendments eliminating references to credit ratings in certain Investment Company Act rules. Credit rating references were eliminated from Rule 5b-3 which determines when an investment company may treat a repurchase agreement as an acquisition of securities collateralizing the repurchase agreement for certain purposes and from Forms N-1, N-2 and N-3 in circumstances where a fund chooses to depict portfolio holdings by credit quality. The Commission will consider the elimination of credit ratings from Rule 2a-7 in a future rulemaking.

SEC Commissioner Gallagher, a vocal advocate for removing the references, stated “The NRSROs failed miserably in their ratings of asset-backed securities, especially residential mortgage backed securities in the years leading up to the financial crisis. These faulty ratings were a core cause of the financial crisis and the inclusion of references to credit ratings in Commission rules (as well as those of other regulators) exacerbated the problem.” He applauded SEC Chair Mary Jo White for “appropriately prioritizing reference removal.”